Micromuse Expects Restatement Following Financial Probe

In a conference call with analysts last week, CFO Mike Luetkemeyer said the firm had identified a number of sketchy accounting practices and described them as "a small number of discrete and seemingly unrelated accounting entries."

Luetkemeyer declined to give specific examples of the types of accounting errors that occurred, but noted that the errors would not have a material impact on the company's reported revenue or on current cash balances. He blamed the errors on the company's roller-coaster growth and downsizing between 2000 and 2003.

"During that rapid growth, we probably didn't grow our resources in financial control as rapidly as we should have," he said during the call. "During the rapid cutbacks, we probably cut too fast and too far, and some of the internal discipline broke down."

Prompted by questions about past accounting practices, the San Francisco-based vendor began examining its finances in September. As a result of that investigation, the company, which sells its popular Netcool product suite through an extensive channel program, announced on Dec. 30 that it would postpone filing its 10-K form for the 2003 fiscal year.

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Though Micromuse declined to indicate when the 2003 financial forms might be filed, Luetkemeyer said the company plans to release its first-quarter earnings on time later this month. The CFO expected his company's first-quarter 2004 revenue slightly to exceed the $34 to $35 million it had predicted previously and noted that the company will now incur approximately $2 million in expenses relating to the accounting inquiry.

A spokeswoman added that the company should restate its financial results for the past four years sometime within the next few months.